Problem 2 (35 points) lg Three mutually exclusive alternatives are being considered to buy a specialized machine at a manufacturing facility. One of the alternatives must be chosen. The estimated cash flows are presented below: Initial investment Expected net income Salvage value Useful life (years) A -$1,100 1st. year = $600 and then declines by $100 per year $0 3 B -$2,050 $1350 per year $205 2 C -$1,400 = 1st. year $300 and then increases by $110 per year $0 6 a. Decide which machine should be chosen using the present worth method: i. Establish the applicable decision criterion. (2 pts) ii. Draw the required cash flow diagrams. (6 pts) iii. If the company uses a MARR of 20%. (10 pts) Present the necessary equivalent models. iv. If the company changes the MARR to 25%. (2 pts) b. Decide which machine should be chosen using the internal rate of return method: i. Establish the applicable decision criterion. (2 pts) ii. If the company uses a MARR of 20%. (10 pts) iii. If the company changes the MARR to 25%. (3 pts)

Three mutually exclusive alternatives are being considered to buy a specialized machine at a manufacturing facility. One of the alternatives must be chosen. The estimated cash flows are presented below: a. Decide which machine should be chosen using the present worth method: i. Establish the applicable decision criterion. (2 pts) ii. Draw the required cash flow diagrams. (6 pts) iii. If the company uses a MARR of 20%. (10 pts) - Present the necessary equivalent models. iv. If the company changes the MARR to 25%. (2 pts) b. Decide which machine should be chosen using the internal rate of return method i. Establish the applicable decision criterion. (2 pts) ii. If the company uses a MARR of 20%. (10 pts) iii. If the company changes the MARR to 25%. ( 3 pts)